Federal Reserve backs third jumbo rate hike to unpick inflation out of US economy

The Federal Reserve backed a third successive jumbo-sized interest rate hike today as it scrambles to unpick inflation out of the US economy.

Chair Jerome Powell and co hoisted the global financial system’s most important rate 75 basis points to between three and 3.25 per cent.

Wall Street edged lower after the move. The tech-heavy Nasdaq fell 0.45 per cent, while the S&P 500 fell 0.37 per cent.

The US dollar strengthened sharply, according to the Wall Street Journal’s dollar index.

The pound, which tumbled to a near 40-year low against the greenback earlier this month, slumped around 0.6 per cent against the dollar.

Yields, which move inversely to prices, on short-dated US government debt surged to more than four per cent for the first time since 2007.

According to a consensus of the FOMC members, known as the “dot plot,” rates are on course to top 4.5 per cent next year.

Today’s hike quashed bets that the Fed would bump rates a whole percentage point higher, something it has not done in decades.

The 75 basis point move takes the cumulative tightening cycle since March to 300 basis points, the quickest since former chief Paul Volcker chased down price rises in the early 1980s.

Powell and the rest of the federal open market committee this year have looked through warnings that the US economy will tip into recession soon to zero in on taming inflation and cooling the jobs market.

Inflation in the US rolled back to 8.3 per cent last month, but there are signs it has switched from being driven by international factors to domestic firms hiking prices.

There is an outside chance the Bank of England tomorrow will follow the Fed’s footsteps and lift borrowing costs 75 basis points to 2.5 per cent, which would be the biggest hike in its 25 years of independence.